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Thursday, 3 June 2021

Juhayna won’t confirm it’s in talks to sell a stake to ADQ, but don’t count this out yet

Is Juhayna in talks to sell a stake to Abu Dhabi’s sovereign wealth fund? Bloomberg broke the news last night, quoting unnamed sources as saying ADQ Holding was looking to take a stake in Egypt’s leading maker of dairy products. The report said the talks were at a preliminary stage, with no certainty the fund would go ahead with the transaction.

JUFO said this morning (pdf) that it has yet to receive an official offer from ADQ. The EGX halted trading on JUFO’s shares for 10 minutes after the statement was logged. JUFO shares closed up nearly 5% today at EGP 4.44 apiece.

It’s easy to see why ADQ might be interested. Juhayna is sharply undervalued, with its shares trading at near an all-time low after plunging more than 40% in the period after the company’s founder and CEO were each detained on charges unrelated to the company. Shares snapped a three-day losing streak yesterday and were up the maximum 5% in early trading today, but it’s still trading at a PE of less than 7 based on its forecast 2021 earnings. Its fundamentals are strong, with a great product portfolio, a track record of product innovation and plenty of room to run in a fast-growing consumer market that still skews toward unpackaged milk and milk products.

JUFO reported stable revenues in 9M2020 at EGP 5.7 bn, with notable improvements in gross profit margin and net income at the same time as it cut its net debt by more than 40%, according to its last earnings release (pdf).

There’s some noise around the stock, including the detention of the Thabets and the company’s shares being bumped to the EGX’s “D-list” after it failed to report its 2020 results on time. The latter is hardly a surprise given the company (which had never previously been sanctioned by the EGX) is wrangling two auditors who are getting their heads around the detention of Seif and Safwan Thabet.

But ADQ is the type of investor that can see beyond that. It’s a long-term in also has a proven interest in both the consumer foods segment and in Egypt. It’s been on an acquisition spree in Omm El Donia as of late, acquiring 100% of Amoun Pharma in April in a USD 740 mn transaction and investing USD 1 bn last year in retailer LuLu’s Egypt expansion. It’s also looking at investments in Egyptian meat and poultry business Atyab and gas stations operator Wataniya. Still, having amassed an estimated USD 110 bn in assets since its founding in 2018, the fund wants to make significant new investments over the next five years, CEO Mohamed Hassan Alsuwaidi told Bloomberg last month.

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